Thread by @tammyschirle

Started reading "Checking out of the Hotel California" on the desirability of an Alberta Pension Plan, by Herb Emery and Ken McKenzie. A good place to start if we want to understand why AB would want to pursue this. A few notes to start

Note, this was published in 2000, so mostly written and revised by 1999. Many things have changed since then, but I get the impression some things have not...

1. Not a new conversation we’re having here.
“…most of the recent discussion has been presented in the media, with little or no analytical work to back it up.”
This intro is sounding familiar

2. Offers some great history for context. Emphasizes point that QC had its own plan at start up.

3. From the historical discussion, highlight some difficulties for AB:
i. if an APP is substantially different, portability becomes a big concern.

3. From the historical discussion, highlight some difficulties for AB:
ii. cost to administrative machinery, managing investment fund aren’t small. Also, AB doesn’t already have a tax infrastructure in place as QC does.

4. Looks at reasons given to support an APP in 1990s.
i. gain control of the pension fund
ii. demographic advantage
iii. ability to design its own

i. On gaining control of the pension fund:
Could be more challenging to create a politically independent investment board at a provincial level.

ii. Demographics. Participation & residency considerations suggest the “demographic advantage” may be overstated.

ii. AB Demographics: But a key point stands out - the transfers (subsidies) found in CPP are largely intergenerational, not interregional. (Comparisons to things like EI are not appropriate.)

iii. Designing a unique APP? duplicative admin structures, risk pooling, portability, transition costs. Perhaps not easy-peasy

5. So could going it alone save AB contributors? They put together some estimates based on the state of the world in 1999, suggests the stead-state rate could be 1.75 percentage points lower than the CPP rate

But that gap is really based on the demographics. They quickly point out that extra funds will be needed to pay for the infrastructure to administer the APP

An APP would also be more exposed to risk - more vulnerable to economic, demographic, and migration shocks. Averaging out those shocks nation-wide had its advantages. AB economy moves with the commodity prices

As AB has one of the most volatile economies in the country, suggests a higher average contribution rate would be required to cover that.

Think long term, very long term

Overall, while a demographic advantage could result in a small reduction in APP vs. CPP contribution rates, the admin and risk costs offset that. Emery and McKenzie suggest it’s possible APP could be more expensive for Albertans